Question

Rico needs approximately ​$2,800 to buy a new computer. A​ two-year unsecured loan through the credit union is available for 12.75 percent interest. The current rate on his revolving home equity line is 9.50 ​percent, although he is reluctant to use it. Rico is in the 15 percent federal tax bracket and the 5.75 percent state tax bracket. Which loan should he​ choose? Why? Regardless of the loan​ chosen, Rico wants to pay off the loan in 24 months. Calculate the monthly payments for​ him, assuming both loans use the simple interest calculation method.

a) The​ after-tax cost of the home equity loan is 7.53%. ​(Round to two decimal​ places.)

b) The payment on the credit union loan would be ​$132.77. ​(Round to the nearest​ cent.)

c) The payment on the home equity loan would be ​$______. ​(Round to the nearest​ cent.)

d)

Answer 1

Given,

Loan amount (L) = $ 2800

Credit union interest rate = 12.75%

Home equity interest rate = 9.50%

Tax rate (t) = 15% + 5.75% = 20.75% or 0.2075

No. of months = 24

Solution :-